OK Guys and Gals. Since it is HUGELY important on our investment success when we buy and when wesell, we need to know at least roughly where we are in the real estate cycle when we act.

Be Courageous. Give us your best thoughts on where we are in the present residential real estate cycle??? How long are "typical" real estate cycles??? When did last one start??? When will it end???

Recent expressions on this Board have alluded to real estate cycles of 11 years and one said 18 years, so it got me thinking, so here goes nothing.

My personal opinion is that in So. Calif. (with differences up to a year for coastal compared to inland), our next real estate cycle will be roughly 15 years with a 6 year down-leg of lower prices and a 9 year up-leg with increasing prices. I believe the last real estate residentIal cycle reached its last peak in mid 2006 for coastal Calif. and early to mid-2007 for inland areas (Riverside, San Bernardino, desert). I think it stalled and continued turning down until 2009 thru 2011 bouncing up and down a little bit along the bottom, for roughly 6 years. on the down-leg and bottom. I believe we are clearly now in a roughly 9 year period of mostly rising prices which will reach a final peak in the year 2020, which this time will be the peak for both coastal and inland areas. Therefore investors should start to be very cautious and watchful of the market starting in 2017 forward if they plan to downsize or whatever.

But for the foreseeable future, do your due diligence and buy with discretion if you have the means and like real estate investments. My opinion may be worth nothing (NO GUARANTEES) but there is my forecast.

Bryce

WHAT DO THE REST OF YOU GUYS AND GALS THINK????? WHAT ARE YOUR FORECASTS????

In my area the bottom is a year or two behind us and things are looking better and better each month. We had increasing sales and increasing inventory this fall but has changed and sales have continued to climb and inventory is not keeping up...it sure looks like we are priming the pump for some good price increases in the next couple years.

But I am not really comfortable sitting back and letting this play out. I am not sure this cycle be like past ones because of all the govt intervention. I will continue to follow the data and when there are warning signs I will consider them very seriously. I am not sure if that will be in a couple years or nearly a decade. But compiling the data is really not hard...the hard thing is to get emotion out of the game and to follow the data regardless is its the popular choice.

Sorry its not very courageous. But I try to know what I don't know. I like following the data. It makes my job a lot easier.__________________Gene Hacker

Originally Posted by brycewheeler I believe the last real estate residentIal cycle reached its last peak in mid 2006 for coastal Calif. and early to mid-2007 for inland areas (Riverside, San Bernardino, desert). I think it stalled and continued turning down until 2009 thru 2011 bouncing up and down a little bit along the bottom, for roughly 6 years. on the down-leg and bottom.

This seems a quite reasonable summary.

I own buy and hold real estate as a hedge against inflation. Not a great strategy since 2007. Some one said that all bubbles are created by easy credit. Any signs of easy credit lately? It is still hard for me to believe that the government printing presses aren't going to cause inflation. Look at all the hand ringing over a measly $85 billion "cut" to trillion dollar deficits.

You always have better information as the future gets nearer. I could make a 10 year prediction now, but in 5 years I could improve it, and it would be really good in 9 years. __________________Rick

It sure like we are ready for a big run. The govt manipulation makes me a bit more cautious than I would be, if the market was more "organic". I like what I am seeing but its never good to get comfortable...better to just keep watching the data and be ready to react.__________________Gene Hacker

Who knows how long the cycle is going to last (if I could predict the market I would be a billionaire!) but I feel pretty comfortable saying IF you can make the payments and don't buy projects beyond your experience level its a great time to buy...

I'm using Gene's graph above for my forecast. Initially, I thought we would enter the bear trap phase in the 4th quarter of this year. The bear trap should last till Spring of 2015. Then we would go for a nice run up with the peak around 2018-2020.

Now I'm having a second thought. I think the bear trap might have happened after the tax credit expired in mid 2010 and lasted till the end of 2011. We're currently in the "media phase" as Gene pointed out above. Looks like this market will top out in 2016-2017. I think there's a good chance that we will see 30-year fixed at 2.5% interest rate on the next market bottom in 2020-2022. __________________Minh

minh. You have some interesting thoughts. Yes, I like Gene Hackers cycle stages and put my cycle dates to his cycle phase descriptions.

Probably 2016 and 2017 may be a good time to re-assess the market and perhaps start tomake some sales.

We sure could have a financial mess by 2020-2022 with perhaps a gold standard push aroundthat time-frame but I would forecast ultra-high interest rates with high inflation rather thanthe 2 1/2 % area. Why do you think interest rates will decline so drastically (just part of a deflationarypart of the cycle or are there other important factors you identify in your forecast??

Gene. I believe as you that the dollar will keep sliding along with most all world currencies as everyoneseems hooked on debt and living on the work of future generations. Will be a race to see who has themost rediculous currency track record. But I am not sure what your forecasted dollar "collapse" would entail. Can you expand on that??? What might be some of the consequences of that, intended or not??

Originally Posted by brycewheeler But I am not sure what your forecasted dollar "collapse" would entail. Can you expand on that??? What might be some of the consequences of that, intended or not??

I am not really sure either

I have no idea how it will go down exactly but I look at history for answers Most govts chose inflation so I am betting it will be inflationary. It could be hyperinflation or a currency collapse like Argentina went through 10 years ago. Not really sure. I am not really envisioning "mad max" or anything but I think a lot of savers and people that are lazy with their money are going to loose a ton.

I agree with you that we will have a great deal of stealth inflation at least, for years, if not small batches of hyperinflation, which favors hard assets. I too favor rentals, precious metals, commodities, some stocks and wish to avoid bonds and cash.

There are other more esoteric hard assets like antiques, rare paintings, diamonds, rubies, emeralds etc.but they are less reliable, far more complicated, less liquid for the great bulk of investors, and requireexpertise which is harder to get.

The next couple of years will see great appreciation for residential real estate investors in most areas, and certainly in California, Arizona and Nevada.

I don't think we have run the full course of deflation yet. That's why I predict 2.5% interest rate on the next bottom of the real estate cycle. Kind of like Japan. I see China has a good chance of entering a depression in the next 10 years due to their stupid 1 child/family policy since 1970's.

This will be the first time I disagree with Gene, but I believe the USD will survive the next round. With China in a depression and I'm not even sure the Euro will survive in the next 10 years, which currency will replace the USD?

I believe gold has entered its down cycle since 1.5 years ago. I wouldn't be surprised seeing gold at $1,100-$1,200/oz in the next 2-3 years. Although I didn't attend the "All-in or Fold" seminar presented by Bruce Norris, I guess you know where I placed my bet. __________________Minh

Originally Posted by suh6I believe the bear trap and bottom occurred in late 2011, which resulted in the actual bottom of the cycle.

See photo below for a modified graph.

The peak is 2021-2013? That's a long way from here.

For the Bay Area, I think we're at 2016 on your chart. Home prices are selling for much higher prices than 2010 especially the low-end to mid markets. Homes in the Fortress neighborhoods have shot passed 2006 and 2007 peak prices already. Borrowing $1M at 3% interest rate is the same as borrowing $500k at 6% interest rate. More buyers are getting out of the credit jail this year and the next few years. It looks like people don't learn from their past mistakes. Everyone wants a house, and they can buy it with only 3% down payment from Homepath or 3.5% from FHA. 5/1 ARM interest only is back. Stated income is back with a sizable down payment.

Hang on tight everyone. It will be another wild ride. __________________Minh

Originally Posted by mlreitsThis will be the first time I disagree with Gene, but I believe the USD will survive the next round. With China in a depression and I'm not even sure the Euro will survive in the next 10 years, which currency will replace the USD? I believe gold has entered its down cycle since 1.5 years ago. I wouldn't be surprised seeing gold at $1,100-$1,200/oz in the next 2-3 years. Although I didn't attend the "All-in or Fold" seminar presented by Bruce Norris, I guess you know where I placed my bet.

I think the only reason things look as good as they do right now (in terms of our currency) is because so many others look so much worse. We have a lot of power being the reserve currency...but we are abusing that power. And what I am hearing from Washington makes me think they are going to double down on these abusive policies.

The next down-cycle....Fed and Govt will print and spend. Its their only play. I think investors will wise up...after all negative real interest rates are really not that appealing. Will it be enough to collapse the dollar? No way to know for sure..but it will not help.

There is a good chance that you are correct the charade can go on for a long time. There is also a chance that the dollar suffers in a big way before the next housing downturn. I cannot predict the future, but there are many troubling signs. __________________Gene Hacker

Interesting call. You said you wouldn't be surprised to see gold at $1100 to $1200 per ounce next2 to 3 years. Seems like most pundits think its supposed to scrape the moon next few years at $2,000, $2,500 and upwards. I suppose those experts base their opinion on continued U.S. gridlock, poor U.S. economy, inability to reduce U.S. debt. Gold seems the hardest of all assets to forecast. But if everything goes to hell in a handbasket, maybe a little gold for insurance wouldn't hurt. Anyway, I have put my bets on rental housing and look for huge jumps next couple of years.

At this point, it is obvious to me that the next best time to load up on some gold as a hedge against the future collapse of our currency or hyperinflation is 2016, which will likely coincide with the next housing market top. I was seriously thinking about buying some gold as a hedge, but just couldn't convince myself to do it based on the gold chart. We'll see where gold prices will be in 2016. Also, Warren Buffett said buy houses and didn't say anything about buying gold in 2011. I didn't want to bet against the greatest investor of all time.

I thought I was done buying the last 4 in contract now when another deal fell on my lap this week. Short sale approved for $300k. It needs about 10k of minor updating to make it look flawless. ARV is $425k based on recent sold comps. Buy and hold or fix and flip? Hmmm.......

Originally Posted by suh6My chart is for socal only. Bay area--who knows.

We're in twightlight zone now. While playing tennis last night, one of the guys told me his neighbor sold his 1,400 sq. ft. house for $700k. Another guy listed his house for $570k and sold for $710k. He was like WTF? We're within a striking distance from 2006 prices.

At lunch yesterday, the guy who bought his house for $2.4M last year told me that his next door neighbor just sold his home for $3.3M, but it's on a 9,700 sq.ft. lot. His lot size is only 7,250.

Personally, I believe will blow up again later this decade, but the correction will not be as severe as the recent one. We're only in the first phase of the seller's market, and things are already looking scary to me. Regardless, enjoy the ride.

Good for you if you can keep buying. I am tapped out. I really need to sell something to raise capital but have decided to just keep borrowing at these good rates believing that my real properties are goingto have outsized gains the next two years, and if I need to I will sell something in 2015. And the relatively safe leverage of real estate price increases helps matters also. The San Diego area has not seen anything the size of the gains in your S.F. Bay Area, but it is nice and steady, and perhaps more sustainable for the long run. But in San Fran, how high is the sky?????

Warren Buffett is on record over the years as regarding Gold as a fool's speculative toy, and not a serious investment as it does not produce any value or dividend. As he is my hero, I won't argue with that too much, although I think a small amount is a good insurance against calamity. I personallythought gold would go below $1,500 on this recent pullback, but not much further below, and tryand get a small pittance of the stuff.

I am tapped out too. I am 100% ok with it. I am very happy we made our move when we did, and I don't want to sit on cash right now. My wife liked it when we had a nice sum in the bank but she understand why I would rather be all in. She has come around a lot. She is on board to sell the primary residence too if things get bubbly...that was 100% out of the question last time.

I my last deal was a few months ago was a Lease option with nothing out of my pocket and I negotiated so that to exercise my option I have to pay off the loan so any pay-down over the next 4 years is my profit. The value was pretty much exactly what they owed on the home but after closing and holding costs they decided it would be better to short sale (not good credit already). They moved on and didn't want to look back. They got out of it without more damage to their credit. I got great terms and I am making cash-flow today and I think I will do very well when I exercise my option in a few years.

I have been busy selling other peoples homes and managing the rentals I have for the last few months but when I need to make time for a fix and flip. There is enough momentum to make it pretty profitable even with expensive short term financing. __________________Gene Hacker

That's terrific to see you so successful and busy as a Broker/investor. I always look forward to your posts, and minh's also, as they are always specific and meaty.

Since I am tapped out too, I will be forced to exercise a little more brain power and get creative like some of the other folks on our chat room if I want to expand my rentals. But with what little inventory there is to buy or capture in north San Diego county, it will be slow going. Also, I need to spend moretime inspecting my properties to make needed improvements, slowly adding things like vinyl double paned windows which I neglected to do when I acquired them, having initially paid more attention to flooring and basics.

It sure like we are ready for a big run. The govt manipulation makes me a bit more cautious than I would be, if the market was more "organic". I like what I am seeing but its never good to get comfortable...better to just keep watching the data and be ready to react.

I cannot believe I'm pulling up this chart again just in 3.5 months. At this point, it looks like we are or have passed the Enthusiasm Phase. However, it feels like we're in a consolidation phase (digesting the recent extreme gain) instead of approaching the Greed Phase.

The stock market is going through a correction phase now, which is fantastic. I believe we are not done with the stock market correction yet. My guess is that we will see another 5-10% drop from here. So every bounce is an opportunity to sell instead of buying.

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